The Mortgage Manifesto

Musical Homes, Where Were You When the Music Stopped?

Year 2008.  The year the music stopped.

After 6-7 years of rapidly rising home prices what is readily apparent now is that this fervor has stopped.  The exit strategy of being able to sell a property for more than you paid for it is rapidly turning into a "no exit" dead-end for many people.

If you bought a property in 2005 or 2006, you most likely bought the top of the market.  Ugh!  I can really say that because I bought two properties at the top.  Double ugh!

We are working our way through a period of deep psychological change regarding money, credit, savings, real estate, and the direction of our society.  At least it can be said that we live in "interesting times."

Unfortunately, the music hasn't only stopped, the mic & speakers are also broken.  Its going to take several years for the carnage and pain of this pullback to moderate in our collective psyche.

Last year, I predicted it'd probably be 2010 before we saw any upward progress again on real estate prices in Minnesota.  That's what I still think.

My daily conversations with clients & acquaintances continue to add anecdote to this reality.  I'm sure you know what I'm talking about, this effects each & every one of us.

www.BrettGrendahl.com

Steady Market

Not much to report on mortgage rates the past few weeks.  The benchmark 30-year fixed rate mortgage is hovering around 6% with no points.

The rates on ARM programs aren't that appealing in general.  In fact, many lenders are discontinuing any of the very short-term ARMs.  Why?  Nobody wants to take on market risk over the short-term (the next 12-18 months).

Underwriting guidelines continue to tighten and the changes Fannie Mae has made only adds costs to all but the most squeeky-clean of credit scores.

The big issue that hits all of us continues to be falling home prices.

Earlier on in this credit crisis (see how the media no longer calls is a "contained sub-prime problem?), banks would proceed as normal on delinguent mortgage borrowers and begin to foreclose.

The new reality is that the surging volume of properties moving into foreclosure only floods the market with an inventory of "motivated sellers" at a time when buyers are few and far between.  Ouch!   But hey, their bankers, right?  They'll come out fine.

What they are finding now in their weighing of options is that maybe, just maybe, a different strategy makes more sense.  What could it be?

Maybe it'd be better to reduce the principal balances and take the hit now but get these loans back into performing loans (where payment are made in a timely basis) and make the lost money back on the interest.

That's a ton better than amassing the legal fees in addition to the capital loss that will occur selling a glut of properties into this market.

Remember, bankers that lend on mortgages never wanted to be property owners.  They were lending against a borrower's ability to repay and just secured it to the real estate for peace of mind security.

Once they threw out the time-tested knowledge of how to assess & price the borrower's ability to repay it all blew up!

www.BrettGrendahl.com

Today Marks the Move Up a Notch

A quick glance at mortgage ratesheets this morning and the best 30 year fixed rate with zero origination is now at 6%.

Don't expect to see below six anytime soon.

Some more news from the front lines; several refinancing transactions I was working on for long-time clients this month have fallen apart for the same reason.  FALLING real estate prices.

Just another ripple of this mess.

www.BrettGrendahl.com

Saying Good-Bye to Sub-6% Rates

Mortgage bonds are breaking through a key technical level I'm been watching for in today's trading.

What does this mean?

It means "so long" 30 year fixed rates under 6%, that's what.  I gave the heads up on this a few weeks back and that window is now closing.  I don't expect to see fixed rates under 6% anytime this year and, quite possibly, not for several years.

Just because the housing market is slowing down doesn't mean we have to see lower rates to get it to pick back up.  Nope.  The only thing that will cure this ill is lower home prices.  Some cure, huh?

www.BrettGrendahl.com

Same-O Same-O!

New day, same stuff.

Mortgage rates have stabilized in recent weeks and continue to linger just below 6.0% on the 30 year fixed rate mortgage.  But, for how much longer?

The days, weeks, and months are numbered.  There just are not a lot of market reasons to see mortgage rates moving lower anytime soon.  Browse my posts from the past few weeks for more foundation on this belief.

The spring/summer purchase market has arrived in Minnesota.  What will be?  From early signs I think we will see home sellers finally capitulate and drop prices to levels that ensure sales.  Unfortunately, the levels to make this happen wipe out the paper gains we've seen in our homes prices the past 3-6 years.  Ick!

Heads up!  For long-time readers that know my pursuits I've got something pretty exciting coming in about 60 days.  I so wish I could share it with you right now but we've got to put the final touches on it before making it public.

You'll be among the first to know, just have to wait another 60 days....

Brett

Lost Jobs As We Head the Wrong Way

Ick.  Today's Jobs Report from the government indicated a loss of 80,000 jobs in March.  They also threw in revisions to the January and February reports to account for another 40,000 lost jobs during those months.

The talking heads in the media & government continue to "debate" whether or not we are in a recession while everyday Americans live one.

In fact, a recent poll from the New York Time/CBS News release yesterday they found that Americans are in the gloomiest moods about our economy since they started that polling ba in the early 1990's.

81% of American think the country is "on the wrong track."  I sure do.  What do you think?

Back to that dismal Jobs Report;  we might see a small improvement in mortgage rate pricing off of it but the way the markets are trading we are not getting anything like we used to off the news.  Why?

Because there aren't any investors who want to buy mortgage debt.  In recent years we had historic demand from investors to buy mortgage debt and that is why rates were so low and the programs a plenty to get someone a home.  Not so anymore.

That dynamic will continue for some time.  So, even as we are likely to continue to see weakening economic news in the months ahead we won't see the normal improvement in mortgage rates.  That relationship is from the past.  The current one is one of complete disconnect. 

Well, I'll be speaking to students at Michigan State University next Monday & Tuesday and be back posting on the blog when I return.

Have a good weekend,

Brett

Mortgage Rates Heading Higher

What's that soon to be in our rearview mirrors?

Rates below 6%, that's what!

The technical damage to mortgage-backed securities continues in this morning's trading.  You know how hard it is for home sellers these days to find buyers?  Well, that's the same situation a mortgage lender has trying to find a buyer for the pools of recently originated mortgages it has on its books.

No one wants them.  No one trust them anymore!

For real estate sellers, their only option is to low-ball their listing price.  For mortgage debt sellers, they have to raise the interest rate to make it an appealing investment for the higher perceived risk in today's market.

Mark these words.  We only have a few days left of sub-6% 30 year fixed rate mortgage rates and it probably will be YEARS before we see them again.

The Fed doesn't control mortgage rates.  The U.S. government doesn't control mortgage rates.  The market does and right now that market is getting smaller and smaller with every passing day.

On a side note, if you anticipate a need to get some of your equity in your home into cash you better do it soon.  I will not be surprised if lenders completely do away with all cash-out transactions as 2008 becomes a landmark year for declining real estate prices across the country.

These times are proving this axiom:  equity in your home is not like cash in the bank, the only thing like cash in the bank IS cash in the bank!

www.BrettGrendahl.com

Rates Stink for Jumbo Mortgages

On my daily perusal of mortgage rate sheets today I saw striking evidence of the further worsening of options for those who need jumbo mortgages.

Here is a snapshot of the Jumbo ARM pricing of one national mortgage company:

• 7/1 ARM at 8.25%
• 3/1 ARM at 9.0%
• 6 month ARM at 12.5%

If you are scratching your head I don't blame you.  Normally, rates get lower for shorter fixed-rate terms on ARM programs.  Those listed above show rates getting much worse for shorter term rates.

What does this mean?

This just shows how cautious and uncertain a large financial institution is about the near future.  This lender is pricing themselves out of the market, they don't want it any more. 

It also means that for those who need jumbo financing, your options continue to dwindle & get more expensive with every passing day.  Unfortunately, I believe that this will continue to be the case for at least another 12 months.  The only thing that will cure this is the rebuilding of confidence in these loans and that means new originations the perform (payments come in on time) to build a track record that captures investor interest again.  That doesn't come quickly.

Brett

Mortgage Rates Edge Higher

As the markets come back up to speed after the 3 day weekend mortgage rates are pricing higher than where they were last Friday.

Here's a snapshot:

• 30 year fixed around 5.875% with no points
• 15 year fixed around 5.5% with no points

Remember, with the recent tightening of underwriting guidelines and Fannie Mae's new pricing structure, there are more variables than ever to price out a conforming mortgage loan program.  Those rates listed above assume 20% equity, 720+ credit score, and a strong application.  Any variant from that baseline will bring higher rates & or costs.

A few weeks back I mentioned that the next little bottom for highly volatile mortgage rates would be about half the distance to the mid-January low of 5.25%.  That is precisely where they bottomed last week.

The question remains:  "who wants to buy mortgage debt these days?"

Financial markets are built on perceptions of value.  Right now, there is a major re-defining of these perceptions.

Until someone steps up in a big way and says, "I AM!", don't believe that these is a reason for a big move lower in mortgage rates.  There just isn't.

www.BrettGrendahl.com   

The Velocity of Debt Hits the Wall!

As we head into the holiday weekend, & a snowy one for us in Minnesota at that (ick!), I find myself pondering another layer of this credit crisis.

For as many years as I can remember, it sure was easy to move debt from one lender to another.  Wasn't it?

How about all that flipping of balances from one 0% interest credit card to another?  Or, how easy it was to flip your mortgage financing from one loan to a new one.  This was widespread from the consumer level all up to the former big wigs (I'm thinking Bear Stearns)!  Everyone fell prey to it.  It can be argued our government is the all-time leader in this game.

However, this is a like a children's game of hot potato.  What happens when the velocity of this constantly swirling sea of debt stops?  Your stuck with what you have, that's what!

The new economics we are moving into will be very debt-averse.  Human behavior will change.  How excited are you these days to bring on more debt?  I bet not as eager as your were only 12 months ago!  I'm sure not.

Have a great holiday.  Spring is right around the corner, right?

BG